The towns are racing to take advantage of a unique and temporary window of federal and state subsidies that offer incentives to create alternative energy sources.

While the cost savings to local taxpayers could be significant, and the facilities will produce clean energy, projects like these are coming under increasing scrutiny for the large government subsidies, the profits they could generate for private developers, and the costs passed on to other consumers. Also drawing attention are development issues, including aesthetics and the loss of agricultural land, where the solar installations will be sited.

Edgartown would make use of three town-owned sites for its solar projects: a parcel off Mattakesset Way now farmed under an agreement with the town by The FARM Institute, a parcel off Pennywise Path behind the Morgan Woods housing development, and a parcel between Edgewood Drive and Briarwood Drive near a town well. Plans include plantings to screen the facilities from nearby homes or roadways.

The Edgartown facilities could produce enough electricity to power all town buildings, town officials claim. The town currently pays approximately $421,000 annually for that electricity. The town’s cost would be fixed by contract over the 20-year life of the solar facility. Town officials project a savings of $2.5 million over that time, assuming the retail price of energy stays constant. Most people expect the common retail price to rise significantly. If it does the town will save more.

Tisbury hopes to locate its solar array on the town’s capped landfill near the Park and Ride lot off State Road.

“As a practical matter it’s very attractive,” Tisbury energy committee chairman Henry Stephenson said. “The field is there, the power lines are there, the hookups are simple, and you have enough land to generate a significant amount of electricity.”

Tisbury currently pays about $237,000 annually to power municipal buildings.

Energy incentive

Federal and state governments, in an effort to encourage production of clean energy and reduce dependence on oil, have established incentives for individuals, municipalities, and developers to build alternative energy facilities.

At the top of the list is a federal tax credit that would offset 30 percent of the cost of design and construction for qualifying energy facilities.

The federal government also recently added a lucrative depreciation incentive. It allows developers to recover the cost of equipment through accelerated depreciation schedules.

Massachusetts has also established substantial incentives. Developers will earn solar renewable energy credits (REC) for establishing solar-generation capacity. The credits are currently valued at a minimum of 30 cents per kilowatt-hour.

At that rate, a 1 megawatt solar facility operating at the capacity anticipated for The FARM Institute site in Edgartown would generate solar energy credits worth about $455,000.

The credits are intended to be sold in an open market, but a floor price of 30 cents per kilowatt-hour is guaranteed by the state. The market for these credits is made by other utility producers, who can purchase the credits to comply with a state law requiring utilities to produce five percent of their power from renewable sources. A utility does not actually have to produce power from a renewable source; it can buy the credits from another utility that does.

A host of other loans programs, grants, and performance incentives could also lower a developer’s costs.

“We have several overlapping incentives that make this very attractive to the town,” Edgartown energy committee chairman Kitt Johnson said.

Complicated formula

The overlapping incentives make for very complex deals. Some of the incentives are available only to developers, and some require large initial costs that make it impractical for a municipality. Some require a threshold level of energy production to qualify.

Massachusetts has capped the projects that could qualify to one percent of the total power produced in the state for individuals, and two percent for large developers. That has created a race among local cities and towns. The first municipalities that establish renewable energy sources will qualify for substantial incentives. Once the cap is reached, the rest will be shut out, unless lawmakers increase the caps.

Massachusetts has also established generous “net metering” regulations. A town or an individual can produce power on hot sunny days and essentially bank the electricity to use at night, or in winter months. The law requires the local utility to buy the power from alternative producers at a retail price. The municipalities will get a credit they can use to pay for energy purchased from the public utility grid. According to NSTAR, the current retail price is about 15 cents per kilowatt-hour. If the prices remain constant, a municipality would pay for its power, at a rate of about 17 or 18 cents per kilowatt-hour. It would then get a rebate from the utility for the solar energy it produced at a rate of 15 cents, effectively reducing its cost of electricity to 2 or 3 cents.

Public, private

In order to qualify for many of the lucrative incentives, the solar projects must be owned by private developers. The towns will provide the land, and possibly tax and permitting incentives.

The eight towns participating in the project belong to the Cape and Vineyard Electric Cooperative (CVEC).

The cooperative was formed in 2007 to help local towns create new sustainable energy sources. CVEC works in concert with Cape Light Compact, which serves 200,000 energy consumers in all 21 Cape and Island towns.

CVEC handles the bidding process for the eight towns as one large project. Developers lined up for a chance to win the contract. More than 40 representatives of solar power developers attended a pre-bid conference.

After extending the deadline several times, the cooperative has narrowed the field to a few finalists, and expects to award a contract to a private developer within the next month.

“The goal was to use the resources of the cooperative to enable the town to take advantage of some unusual circumstances taking place in the renewable energy scene in Massachusetts,” Mr. Johnson said. “To get into the program you have to get your capacity to a certain state. Edgartown and Vineyard Haven by themselves don’t have the resources necessary to do it. But by being part of the cooperative, we can.”

Mr. Johnson estimates that Edgartown’s three possible sites could host solar arrays that would produce about five megawatts of power. Developers and town officials use a rough estimate of $4.5 million per megawatt to build a solar installation, before any incentives are subtracted.

He said Edgartown’s capped landfill was evaluated three different times as a site for a possible solar array, and engineers concluded a solar array there would not be cost-effective.

Tisbury’s site is big enough to hold a solar array that could generate about one megawatt of power.

Clouds of opposition

Some opposition to the solar projects surfaced in recent weeks. The site considered best for solar energy production in Edgartown is a town-owned parcel that is currently in agricultural use by The FARM Institute. At a December 14, 2010 special town meeting, voters authorized selectmen to negotiate and enter into contracts to develop a solar-generating facility on the three parcels currently under consideration.

A motion to exempt agricultural land from solar power development was soundly defeated by voters at the December special town meeting.

The Martha’s Vineyard Agricultural Society board of directors voted unanimously to express its concern in a letter to Edgartown selectmen.

“Taking five to six acres out of production for 20 years or more means thousands of dollars worth of beef or chicken, or lamb or vegetables per acre every year, will not be available to the farmers and consumers of Martha’s Vineyard,” Ag Society president Dale McClure wrote for the organization. “It is comparable to setting up solar panels over five acres of productive scallop beds in Cape Pogue Bay.

“We hope it is not too late to reconsider. The self-reliance you are helping us achieve in energy is great but should not also diminish our self-reliance on food production.”

Also raising concerns are public utility officials. The net metering regulations require the public utility to buy power generated by alternative energy producers at the retail price the utility would charge a business customer where the solar array is located. For NSTAR, the public utility that distributes power to the Island, that price is about 15 cents per kilowatt-hour.

Purchasing power from a solar facility is more expensive than the wholesale price of power NSTAR now purchases, mostly from plants fueled by natural gas. That cost will be passed on to all NSTAR customers.

“We support renewable energy,” NSTAR spokesman Mike Durand said. “We have more renewable energy projects in our system than any other public utility in Massachusetts. The issue here with net metering is determining what the price is going to be.

“If we pay retail for generation that comes from a green energy facility, then we are paying more than we pay for the power that we pay for energy on a daily basis from traditional energy suppliers. It does tend to have upward pressure on the supply side of the bill. It’s not a big part of our supply, but it has a tendency to put upward pressure.”

NSTAR will also charge the developer for any costs needed to upgrade its power transmission infrastructure, and to deliver the power to the utility grid. There is always a possibility that those upgrade costs could make solar development unprofitable for developers.

Edgartown assessors also recently raised questions about whether a privately owned energy production facility would be taxable, both for the infrastructure, and as a utility.

“There’s a lot of money on the table in tax credits,” assessor Alan Gowell said at a Feb. 28 selectman’s meeting. “We ought to be paying attention to how the money moves around. If we let an entrepreneur operate on our property and make a great deal of profit, then we’re missing a chance to share in it.”

Selectman Art Smadbeck expressed concern that the tax issue could be so onerous to a developer that it stops the project. He said a developer is likely to pass the tax expense through to the town.

“At the end of the day, it doesn’t matter,” Mr. Smadbeck said. “It’s money we would be paying ourselves. Common sense would dictate you’re probably better off saving the $3 million and foregoing the tax, than not saving the $3 million and not having the tax to forego.”